Equity Multiple

Equity multiple is everything an investment pays back, distributions plus sale proceeds, divided by everything you put in. Invest $1,000, collect $300 in distributions over five years and $1,200 when the property sells, and you received $1,500 on $1,000. The equity multiple is 1.5x. A multiple below 1.0x means you lost money. Exactly 1.0x means you got your capital back and nothing more. Sponsors usually quote a projected multiple next to the projected IRR because the two answer different questions.

IRR measures speed. The multiple measures size. A deal that returns 1.5x over three years has a much higher IRR than one that returns 1.5x over ten, even though both hand back the same total. That is why looking at either alone can mislead. A very high IRR on a short flip may come with a thin multiple, because there was not enough time for the money to grow. A generous multiple on a long hold may come with a modest IRR, because the money was tied up for years. Reading them together tells you both how much and how long. As a rough guide, fractional deals with a five to seven year hold tend to project multiples between 1.5x and 2.0x. Anything higher deserves a close look at the exit assumption.

The multiple is easy to sanity-check because it is just addition. Take the projected annual distribution, multiply by the hold period, add the projected sale proceeds and divide by the investment. If the arithmetic does not match the sponsor's number, something in the projection is not shown. It also makes the split between income and appreciation visible. If most of the projected multiple arrives at the sale, the deal depends on the exit. If most of it is distributions, the deal depends on the rent roll. The second kind is easier to verify from the listing, because rent is visible today and sale prices are not.